Hospitals back gov.’s healthcare plan

Times Staff Writer

SACRAMENTO -- Gov. Arnold Schwarzenegger won an important ally Thursday in his effort to overhaul the state’s healthcare system, as California’s private hospital industry agreed to a $1.7 billion tax on itself.

The tax, which would require voter approval, would help cover the cost of providing health insurance for all Californians, which the governor said was his goal for the year.

The tax money, along with federal funds and a $600-million tax on public hospitals, would create a $4-billion pot of money that would then be returned to hospitals based on how many poor people they treat.


Most hospitals would end up with more money than they paid in the tax, although some would end up with less.

“It’s a very significant deal,” said Peter Harbage, a senior program associate with the New America Foundation, a think tank with offices in Washington, D.C., and Sacramento. Schwarzenegger based his proposal on some of the ideas endorsed by the foundation.

The hospitals’ backing removes one major obstacle to the ballot initiative Schwarzenegger is trying to write with Democratic legislative leaders to embody part of his healthcare changes. But many hurdles remain, including business opposition to another central part of Schwarzenegger’s proposal: a requirement that employers provide health insurance for workers or pay a fee to the state.

Labor also has major reservations about the idea of mandatory insurance, and Blue Cross of California, one of the state’s largest insurers, is spending $2 million to fight his proposal to require insurers to accept all customers.

Republican lawmakers have also opposed his plan, making it almost certain that the governor and Democrats will need to place large sections of whatever agreement they work out on the ballot. Sen. George Runner (R-Lancaster) said that although the hospital tax sounded like “a smart strategy” for hospitals to “double their money,” Republicans would not support it on its own.

“But it’s got to be within the context of what the total plan is,” he said. For instance, he said, GOP lawmakers would not support it if some of the money went toward healthcare for illegal immigrants.

With any deal between Schwarzenegger and Democrats appearing increasingly unlikely before the Legislature adjourns for the year next week, there is growing talk that Schwarzenegger may call lawmakers back to Sacramento for a special session if he reaches a deal with Democratic leaders.

Eighteen other states use hospital taxes to leverage federal healthcare money, but California has long lagged far behind. The state obtained less federal Medicaid money per beneficiary than all other states except Hawaii and Georgia in 2005. California’s rate of $3,419 per patient was far below New York’s rate of $5,891.

The low provider rates -- half what the federal Medicare program pays doctors who treat the elderly -- have prompted many California doctors to refuse to treat MediCal patients, and led hospitals to eat $2 billion in unreimbursed costs for treating the poor last year.

“Today’s vote helps carry the momentum to achieve meaningful reform this year,” Schwarzenegger said in a statement.

The California Hospital Assn. had resisted Schwarzenegger’s plan for months because somewhere between 30 and 50 hospitals would lose money under the plan. But the group’s board agreed to the plan Thursday morning after extracting a number of substantial concessions from the Schwarzenegger administration.

Under the deal with the hospitals, the administration agreed that it would increase Medi-Cal rates each year as federal Medicare rates rose but would never increase the tax above 4%. That could mean that the state would have to contribute more money from its general fund to healthcare if the federal government lowered Medicare payments.

The hospital association did not commit to paying for the ballot campaign -- which will cost between $1 million and $2 million just to collect the signatures to get it before the electorate. But C. Duane Dauner, the group’s president, said “we will be a partner in that coalition.”

Also as part of the deal, all the hospitals agreed to end the practice of “balanced billing,” whereby they bill patients for costs their insurers do not cover.

That was an important concession to Kaiser Permanente, which is the only private hospital chain that would lose money under the hospital tax plan, because its hospitals do not treat uninsured patients or accept walk-ins. Kaiser would lose about $119 million a year, according to state estimates.